SECRETS OF BONDING #157: Bid Bond Quiz

Is there anything less interesting than a bid bond?

They may not seem too exciting, but the lowly bid bond is an integral part of our surety business.  For contractors, they are often the key to acquiring new revenues.  If you don’t think they are important, watch what happens when a client is waiting for one that never arrives.

As surety underwriters, we spend a great deal of effort assuring these documents are accurate, delivered on time, and we track the outcome on each one.

Everybody knows about bid bonds, right?!  OK let’s see if you do…

True or False:

  1. If you decide to not use a bid bond you ordered, you have to send it back to the surety within 48 hours
  2. They have an expiration date
  3. A bid bond precedes every performance bond
  4. The surety can cancel the bid bond
  5. The dollar value of the bid bond equals the amount of the proposal it accompanies
  6. The surety must know the exact dollar value of the bid bond before they will issue it
  7. The premium for them must be paid in advance
  8. They remain active for up to six months
  9. It is better to use a check for security than a bid bond
  10. The same surety that issues the bid bond must issue the performance bond

OK team, how’d you do?  # of True______? # of False____?

They are all False!

  1. An unused bid bond has no value but it makes a great liner for your bird cage
  2. Never has an expiration date
  3. Some contracts are negotiated (no bid bond) or may require a surety capacity letter instead
  4. Like a performance bond, these surety instruments cannot be cancelled
  5. Most often the penal sum of the bid bond equals a percentage (10-20%) of the proposal amount
  6. Most bid bond amounts are expressed as a percentage of the proposal amount, not a dollar amount, to protect the confidentiality of the proposers bid. In such cases the exact dollar value is unknown in advance.
  7. Sureties are entitled to charge for them, but usually don’t
  8. Although not stated, most sureties consider them void after 90 days
  9. Wrong! If the performance bond is not produced, the check can be forfeited
  10. Nope! Two different sureties can be used, even if a “Consent of Surety” was issued with the bid bond.

Bonus Question: If the bid is rejected because the surety’s credentials are found to be inadequate, can this result in a bid bond claim?

Answer: Theoretically, it should not. If the bond is declared inadequate, how can it be sufficient for a claim?

When flexibility and aggressive underwriting are needed, give us a call.  Find out what you missing when it comes to surety bonds.  

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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Secrets of Bonding #156: You Know About Financial Statements

Audit, Review, Compilation: You know the difference. With bonding companies, you need certain financial statements (FSs) at different times. But there is one FS you don’t know about, and it can be very helpful!

  • Audit: This is the highest level of CPA (Certified Public Accountant) presentation. The CPA provides a cover letter stating they have checked over the numbers and believe they are accurate.
  • Review: This is the middle level.  The CPA does some checking, but less than an audit.
  • Compilation: This report has a disclaimer letter.  It says the FS is the presentation of management – meaning the CPA does not vouch for the numbers.
  • Other than CPA prepared statements, you could run into one by a PA (Public Accountant,) or a bookkeeper.
  • There are also Internally Prepared statements produced directly by the customer, such as with Quickbooks.

Then there is this Secret One you probably don’t know about.  It can be a strategic help and will not be suggested by the accountant.  It’s up to you to get it!  We call it a “Confirmed Internal FS.”  

This document is an internal FS, such as Quickbooks, but with an important upgrade.  When obtaining a Confirmed Internal Report, the president or company owner is required to sign and date the company Balance Sheet (or maybe every page of the document) and write “Confirmed.”  This is an affirmative statement that the FS has been scrutinized.  It is a document with greater credibility, because someone is taking responsibility for it. (Read Secret #5 about the role confidence plays in bonding.)

Here is a real life example of how beneficial, how strategic, the Confirmed Internal FS can be.  This week we are issuing an $8 million P&P bond for an applicant with a 12/31 fiscal year-end. Obviously, the CPA report is not available yet (less than one month after the FYE). However, before issuing the bond, we must get a read on their financial picture.  How did the year turn out?

We can’t get the CPA report, but an internal FS is available.  These documents come off the client’s computer system. If the company doesn’t have an in-house accountant (many do not), the FS has low credibility unless it is reviewed and Confirmed by a responsible party / indemnitor.

Can underwriters base a decision on a Confirmed FS? That depends on whether the surety has the flexibility to give an approval in the absence of a CPA Audit or Review (many do not.)

Fortunately, we were able to proceed based on the confidence that the business owner reviewed and Confirmed the financial statement.  He signed his name and went on record, “You can rely on these numbers.” To us, that makes a big difference!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Surety Check Up- NOW is the time

We all know the value of a medical check up.  Address the issues.  Prevent unsolvable problems and bad outcomes.

The health of a surety bond account is also important, vitally important for companies that need bid and performance bonds to acquire additional revenues. That’s why we offer a free “medical” check up for construction bond accounts at this time of the year.

It’s easy, fast and free, and you DON’T need an appointment.  We will provide a Surety Bonding Evaluation based on just two pieces of information.  This initial evaluation will show if the correct amount of capacity is being provided, identify problem areas that may be holding the account back, and may include advice on making strategic changes.

We guarantee a same day response and will review:

  • Amount of single bond capacity that may be appropriate
  • Amount of aggregate bond capacity the account qualifies for
  • Financial areas where the account can be strengthened
  • Red flags and issues that can hurt the bond account and how they may be easily resolved!
  • Good cholesterol / bad cholesterol screening (just kidding!)

Info needed:

  1. “draft” company year end financial statement
  2. contractor questionnaire.

That’s it!  Most construction companies have a 12/31 fiscal year end, so NOW is the time to preview the info and evaluate it for bonding – before the CPA makes the final 12/31/17 version. This process is strictly confidential.  We don’t run credit reports or contact anyone.  It’s confidential with the Bond Doctor…

Isn’t it better to have confidence going into 2018? Send to “” or call 856-304-7348.


KIS Surety Bonds, LLC is the exclusive surety underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.

We have in-house authority for Bid and Performance Bonds up to $10 million each.

Contact us for creative solutions and a same day response.